Why social entrepreneurship is relevant today ?

Relevance of social entrepreneurship in today’s society is a deep and meaningful one.

The challenge facing every economy in the world is about funding its social system. How does the government find financing that will keep the healthcare system functioning, the schools providing quality education and the higher education system developing professionals that are needed to provide essential services to our society ?

Funding the social system is a an obligation that the government must fulfill, but how the funds are generated depends to a great extent on political ideology. Primarily, there are two sources of government revenue. One is taxes and the other is foreign investment. It is therefore critical for the government to generate enough revenues so that a significant amount of that can be directed at the social infrastructure. Failure to do so, leads to deficit financing .

And it is here where the ideologies come in to play. Left leaning ideologies believe in tax and spend. While right leaning ones believe in market efficiencies. By lowering and cutting taxes, they try to stimulate business which by a multiplier effect impact government tax revenue positively.

Real life experiences, specifically in the light of the financial crisis, has exposed the challenges of funding the social system. While tax revenues continue to decline and government expenditures mount, funding the social system is becoming a major issue in every society.

Here is where social entrepreneurship steps in. What the government is finding difficult to achieve on a large scale,can be developed at the micro level. Private enterprises can develop business plans which will exploit local resources and contribute to prosperity of local communities.

How do we implement such plans? That will be our point of discussion in the next post.

Todays challenges for social entrepreneurship

A very fundamental theme in management accounting is, ‘what you can’t measure, is something you can’t control’.

This is what lies at the heart of challenges facing social entrepreneurship. How do you place the attribute of ‘success’ to a social innovation? In business, successful firms grow fast. And, if they are publicly listed the growth in value is reflected in their stock price. What would be a comparable benchmark for this sector?

The second challenge is in the area of risk/return trade-off. A new business venture always carries the underlying risk of failure. There is a venture capitalist or the entrepreneur who is willing to take on this risk of failure. Who would be the comparable underwriter in this sector?

In the absence of a clear underwriter, government funds would normally go to projects that are risk free. For example, the recent $5m funding given by the White House under the SIF program to New Profit. The goal is to work with not for profit groups to help young people make the leap from high school to college.

Compare this to a ‘risky’ venture by Root Capital. Their project financed a coffee grinding machine to a remote community in Tanzania. Prior to obtaining the machine, the coffee farmers would go about the entire post harvest process manually. With mechanization, the efficiency has increased. In the same amount of time, the community can now process more of the coffee beans. This in turn has increased their income potential and made them prosperous.

And finally, the outcome of these challenges has been that innovation emerging out of social entrepreneurship has not spread far enough. The steps we can take in this direction will be discussed in the next blog.

Where social entrepreneurship is presently at?

The biggest recognition for social entrepreneurship came in form of the Nobel Prize in 2006. The economics prize for that year was awarded to Prof. Mohamed Yunus of Grameen Bank ( Bangladesh). This was in recognition of the pioneering work done by his organization in the area of micro-finance.

The theme of micro-finance has grown stronger  and varied. There are philanthropic organizations and venture capital firms that are in the business of lending funds to those who would otherwise not qualify for a loan from a bank. Notable organizations in this area include Acumen Fund and Root Capital  in the US , The Skoll Foundation in UK and SKS Micro-finance in India.

Research in this area is evident from the books published by eminent scholars. Power of Social Innovation(2010) by Stephen Goldsmith , Social Entrepreneurship: New models of sustainable social change(2006) by Alex Nicholls , are examples of some great books on this subject.

Any discussion on social entrepreneurship will be incomplete without a reference to Prof. C K Prahalad and his pioneering work ‘Fortune at the bottom of the pyramid’ (2004). His theory that profits from private enterprises can alleviate poverty was truly a landmark. Not too say that there were naysayers to this argument. However, this theory stood the test of time and an updated version with success stories was published in 2009. Sadly, for all of us Prof.  C K Prahalad passed away in April 2010.

There is an argument in some quarters that enthusiasm about social entrepreneurship has run ahead of its effects. This argument will be explored in the next blog.

Why society at large is oblivious to social entrepreneurship ?

“Great spirits have often encountered violent opposition from weak minds.” Albert Einstein.

Let me talk about my own experience that will justify this quote by Einstein and establish why society at large is oblivious to social entrepreneurship.

In May 2007 I went to audition for the venture capital seeking show ‘Dragons Den’, which appears on CBC. Our concept was about providing micro financing to high school students who have good business ideas. The financing was to allow them set up  a small business in the summer months. They could run the business or service in their own communities and use that a launch pad for their skills.

The audition Director vehemently opposed this idea. His logic was that, this was never tried in Canada before and therefore was not worth proceeding. My argument that a Nobel Prize was recently awarded for micro-financing was not convincing enough. And the end result was that our team was rejected outright.

Vindication of my concept came in the summer of 2009. The Ontario government launched a program called ‘Summer Company’. The plan was to provide financing to high school students to start their own businesses during the summer months. Just the same business model that we pitched two years back. Was the Director listening?

This personal example begs the question: ‘why is society at large so regressive to new ideas?’ More so, when the risk is minimal and the idea has the potential to bring a strong transformational change to our society.

Social entrepreneurship re-framed.

My research in this area reveals that business model that is most prevalent involves financing a social project. This may involve providing financing to buy equipment to a section of an under privileged community. With the new equipment, productivity increases, the community can produce and sell more. As a result they can earn more with the same effort  and be more prosperous.

A concept that I am currently working on, is to take this one step further. To bring social entrepreneurship in the area of services. Starting a service venture, would require lesser funds than financing a business venture. And more importantly, its impact will be on a greater section of the society. This is at the heart of re-framing social entrepreneurship.